Buy Junky Currencies

It's June 2006 and you're looking for a low-risk investment. The financial crisis isn't even a rumble on the horizon yet but you're wary of anything connected to the easy-money-fueled run-up in real estate and stocks. You decide to borrow Japanese yen, exchange them for dollars a...

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Veröffentlicht in:Forbes 2009-06, Vol.183 (11), p.45
1. Verfasser: Beller, Peter C
Format: Magazinearticle
Sprache:eng
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Zusammenfassung:It's June 2006 and you're looking for a low-risk investment. The financial crisis isn't even a rumble on the horizon yet but you're wary of anything connected to the easy-money-fueled run-up in real estate and stocks. You decide to borrow Japanese yen, exchange them for dollars and stick the proceeds into one-year US Treasurys. Bear markets, bankruptcies and changes in governments don't bother you. The only thing that can go wrong is if your dollars fall in value against the yen that you must repay. This, essentially is the currency arbitrage strategy known as the carry trade. Economic theory posits a world in which easy profits like that are precisely offset by disasters in which the currency being bought falls in value relative to the currency being borrowed. Small investors can invest in the carry trade in several ways. You can trade foreign exchange online. An easier way to invest in the carry trade is via two exchange-traded funds.
ISSN:0015-6914
2609-1445